Tuesday, April 15, 2014

Transcription

1 Tuesday, April 15, 2014

2 Mike Erwin, CGFO, CGFM Partner & Co-Founder, KYTHE LLC

3 80% from the Study Guide 38 pages All pages 20% from Glossary 43 pages All pages Study Guide for Texas State Law 42 pages Page 22 Miscellaneous Financial Provisions Page 33 - Purchasing This test covers the material

4 Since April have taken 47 have passed 75% pass rate 79 average score

5 Whatever works best for you

6 Revenue for Local Government Purchasing Risk Management Public Pension Fund Administration

7 Basic concepts and criteria for assessing revenue instruments Issues of administration The revenue sources relied on by local governments

8 Purchasing Risk Management Public Pension Fund Administration

9 Local Government Revenues 2 Major Groups Taxes Property Local Option Sales Tax Non-Taxes Fees, Fines, Forfeitures Charges Grants Tax Levy Amount of revenue derived from a tax Tax rate x Tax base Property tax levy ad valorem tax levy Mills one-tenth of one cent Tax levy rarely the same as actual collections

10 Impacts to the Tax Levy Tax Avoidance Legal Reduction to the tax base Example contribution to an IRA Tax Evasion Illegal reduction to the tax base Example retailer fails to record taxable sales Tax Expenditure Legal reduction typically initiated by Government Example homestead exemption

11 Equity Two Competing Principles Benefits received Ability-to-pay Benefits Received Service must be Divisible Measurable Excludable Examples water usage Ability to pay Greater ability to pay should pay larger percentage of their income Most appropriate for public goods Example excise taxes on certain luxuries

12 Equity Two Types Horizontal Vertical Horizontal Similar economic conditions are charged equally Example Similar sized house, similar property taxes Vertical Greater ability to pay bear a greater portion of the burden Example graduated federal income tax

13 Three Types of Tax Structures Regressive Progressive Proportional Regressive Lower income pay a higher percentage Progressive Higher rates to those with greater ability to pay Proportional Same rate applies to all properties

14 Administrative Feasibility Critical for the efficient operation Primary concern is security of public funds

15 Five Steps to Administer a Tax Determine the tax base Set the tax rate Administer the tax, issue bills & collect payments Process payments Audit for compliance Estimates to Administer tax Property tax 1 to 3% Sales tax less than 1% Lotteries 15%, 50% to winners, 35% general fund Piggybacking Levying a tax on a tax base identified, maintained and taxed by another entity

16 Economic Efficiency What effect does a tax have on consumer or business behavior If economically efficient should not alter decisions in the market Five Areas of Economic Activity that may be Distorted by Taxes Mikesell Work versus leisure high taxes on extra income Business operations abnormal business practices to avoid a tax Consumption choice high taxes encourage purchases in other locations Personnel management travel expenses are deductible hold in resort locations Productive investment choosing investments to avoid taxes

17 Successive increase produce a higher rate to a point Highest point revenue is maximized Any move beyond this point actually reduces tax revenue Inelastic demand Alcohol, tobacco higher tax rates Elastic demand Sporting event at some point stay home and watch

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19 Property Tax Non-property Tax

20 Steps of the Operation Assess Establish tax rate Bill Collect

21 Conducted by Appraisal District Uniform Standards ensure Horizontal Equity Assessed on Fair Market Value Reappraised on a Regular Cycle 3 to 4 years (biennial plan) Consistency through Random Sampling of Properties Coefficient of dispersion Example page 10

22 Truth in Taxation Publish Effective rate Rollback rate Remember the test is on the materials in the handout

23 Direct Relief Tax limitations Rollbacks Homestead Other exemptions Circuit breakers Indirect relief Other revenue sources are developed

24 A Revenue Guide for Local Government Chapter 4 Fiscal Administration: Analysis and Applications for the Public Sector Management Policies in Local Government Finance Chapter 10 Texas Property Truth in Taxation Texas Local Government Code

25 General Sales and Use Taxes Sales Tax rate times transaction amount Use Tax major purchases of equipment and vehicles Tax expenditures related to sales tax Food Drug Clothing for infants, children and other necessity items General sales tax is regressive tax Tax expenditures, exemptions reduce the regressivity

26 Major Benefits of general sales and use taxes Export tax burden to nonresidents Elastic revenue source Disadvantages of general sales and use taxes Regressivity Compliance Audit

27 Excise Taxes Hotel/Motel tax Ad valorem taxes applied to the sale price In rem levied on each unit sold Often earmarked for specific purpose Income Tax

28 User Fees and Charges Closely resembles a private good and costs are easily determinable Measurable and excludable Based on the benefits received principle of equity Ways Used Golf, Tennis Solid Waste, previously funded through General Fund Water, Sewer

29 Benefits of User Fees and Charges Allow government to gauge demand for services Keep tax property tax rate lower Charges organizations that are exempt from property tax Drawbacks of User Fees and Charges Regressive if implemented for necessary services Full cost not always easily determinable Local government use different pricing strategies depending on their objectives Block pricing structure water rate tiers, marginal pricing strategy

30 Licenses and Permits Benefits received principle Licenses Grants the recipient a privilege to engage in an activity Types Attorney, doctor, realtor, insurance sales Retail sales, hunting, fishing Differs from franchise fee in franchise fee must provide service to entire population Permits Grants a privilege for a specific task or event Types Building parade

31 Development Impact Fees Help pay for infrastructure Water, sewer, streets, parks Adopt by ordinance In conjunction with a comprehensive plan Larger cities more likely than smaller cities Charged an amount that is in proportion to the demand it creates Planned facilities are built in a timely manner Two general methods of fee calculations Inductive cost of the project s impact Deductive demand on public infrastructure

32 Grants Categorical Grants More restrictions The effect is to lower the cost of some task, price effect Example water treatment plant Block Grants Raise the income or available resources of the government receiving the grant Recipient has wide discretion in the use of funds Example ground transportation

33 Process most use Forecast non-property tax revenues Determining spending needs for the budget year Set the property tax rate 3 basic methods to forecast revenues Best judgment - informed judgment of finance director Trend analysis recent patterns or simple linear regression Econometric forecasting multiple regression using different variables More Complex Simultaneous equation models predict values for each of the variables

34 Tax Expenditures Changes to the Rate of Base that lowers the levy Changes to the Rate Fairly simple Replace old rate with new Predict change in behavior Changes to Base More Complicated Exempt class of property, what impact Will benefit of one class hurt another class

35 Revenue Administration Minimize the cost of collection Maximize the percentage collected Protect the resources of the government from internal and external theft

36 Buy goods and services that meet the needs of the organization or customers at the lowest possible costs Locate qualified sources Request proposals Choose the best source Negotiate Monitor performance of their suppliers Two major differences Conform to establish laws, procedures, and policies Subject to media attention

37 Should be centralized Develop historical data Open to public scrutiny Impartial Exception to impartial is local preference

38 Policies should be in place and written to ensure laws are not violated Policies divided up into five categories Vendor selection flow from advertisements for bids Bid structure and evaluation based on requirements detailed in the instructions Purchasing two types of purchase orders, central and departmental Material receipt and testing reviewed for quantity and quality when received Cooperative purchasing acquisition of material for two or more jurisdictions

39 Identification and control of events, forces or circumstances that pose danger to people or property Process of managing risk involves: Identifying objects that are at risk Assessing the dangers and the likelihood of loss Taking steps to eliminate or minimize the chances of harm occurring

40 Six Categories Legal liability to others Drives vehicle thru citizen s property Property loss Natural disaster Extra expense Cleanup expense Loss of income Damage to income producing properties, such as pools Human resources loss Higher medical and overtime expense Crime and fidelity loss Loss from theft, embezzlement

41 Determines the probability and the consequences of the loss Quantitative Financial loss should be used where possible Provides precision Qualitative Impacts described generally Loss of human life hard to quantify Combination

42 Box 5 Standards for Good Analysis It is consistent with state-of-the-art scientific knowledge. Any assumptions used are clearly explained, used consistently, and tested for reasonableness. The analysis is verified for accuracy (e.g., of calculations). Unnecessary assumptions are removed before the final analysis is reported, after verifying to ensure that the removed assumptions do not affect the results. Any models used for calculation are well defined and, ideally, validated by testing against experimental results and observational data. Data sources are identified in such a way that the data can be obtained by anyone interested in verifying them. Calculations are presented in such a form that they can be verified by others interested in confirming the results. Uncertainties are indicated, including those in data, models, parameters, and calculations. Results are discussed clearly, indicating what conclusions they can support. Source: National Research Council

43 Cost-benefit analysis Compare the cost to the benefit Multi-attribute utility analysis Compare one outcome to another outcome

44 Reduce, transfer or retain risk Reduce address hazardous situations Transfer placing the burden of financial loss on another party Retained willing to assume Major types of insurance Property insurance -- to protect against damage or loss of property; Liability insurance -- to cover losses related to a government not meeting a responsibility; Fidelity bonds -- to cover losses resulting from embezzlement, fund misappropriation, or other losses resulting from dishonest employees; Workers compensation -- to provide employees with coverage for medical bills resulting from job-related injuries.

45 Self insurance Intergovernmental pool TML

46 Two general categories of benefit plans Defined benefit specific benefit when they retire Defined contribution employer sets aside a specific contribution given to employee Funding Pay as you go Reserve fund method Three methods of actuarial valuation Cost investment return as the sum of ordinary income plus capital gains and losses Market market price of investments Moving average method smooth short term fluctuations Pension trust funds in governmental fund accounting; GASB 25, 43 and 45

47 80% from the Study Guide 38 pages All pages 20% from Glossary 43 pages All pages Study Guide for Texas State Law 42 pages Page 22 Miscellaneous Financial Provisions Page 33 - Purchasing This test covers the material

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